Colin Stewart, CEO and portfolio manager at JC Clark Limited
Focus: North American large caps

MARKET OUTLOOK

Notwithstanding the most recent bounce, the last year has been a very difficult period in equity markets. Sentiment went from universally positive early in 2018, to very negative during November and December. Equity valuations also contracted and are now markedly cheaper than a year ago. While there are a host of macroeconomic concerns (U.S.-China trade war, slowing economic growth, Brexit), we don’t believe a recession is imminent. In fact, the current backdrop in North America is relatively positive: record-low unemployment, strong corporate earnings, expectations for moderate economic growth in 2019 and recent holiday spending data that showed 5.1 per cent retail sales growth in the U.S. during November and December. Of particular note are the increasing number of high-quality, larger companies in Canada and the U.S. that have seen very severe share price declines in the last few months with little or no change to their fundamentals. We believe this is creating a unique opportunity for us to buy blue-chip businesses at valuations that in many cases haven’t been seen in years.

TOP PICKS

MAPLE LEAF FOODS (MFI.TO)
Last purchased in January at around $29.50.

• Maple Leaf is a Canadian-based company with leading market share in pork and poultry products.
• It’s growing business via acquisition and expanding position in growth areas such as organic proteins and RWA (raised without antibiotics) products.
• Margins are poised to expand over the next several years as Maple Leaf modernizes it poultry-processing operations
• It trades at only eight times earnings before interest taxes depreciation and amortization (EBITDA), a significant discount to competitors such as Hormel Foods and at a discount to its historic multiple.

FAIRFAX FINANCIAL (FFH.TO)
Last purchased in December at about $586.

• Fairfax is a leading global property and casualty insurance company.
• It showed strong underwriting results in recent quarters.
• It has an excellent long-term investment track record. Significant cash holdings in its investment portfolio create future upside through being deployed into new investments.
• Fairfax is trading at close to book value for the first time in six years.

ATS AUTOMATION (ATA.TO)
Last purchased last week at $16.50.

• ATS is an automation solutions provider that designs and builds automated manufacturing and assembly systems.
• It provides solutions to several secular growth industries: electric vehicle manufacturing, warehouse automation and healthcare equipment.
• There’s opportunity for margins to expand as ATS integrates recent acquisitions.
• It has a strong balance sheet.
• The valuation is attractive at only eight times EBITDA, a large discount to closest peer Rockwell Automation at 12.7 times EBITDA.

PAST PICKS: APRIL 24, 2018

CASCADES (CAS.TO)

We sold our fund position several months ago at close to $11.50 due to concerns about potential containerboard pricing weakness.

• Then: $12.72
• Now: $9.94
• Return: -22%
• Total return: -21%

ALCANNA (CLIQ.TO)

Sold our fund position in November at around $8.50.

• Then: $9.82
• Now: $5.27
• Return: -46%
• Total return: -45%

GREAT CANADIAN GAMING (GC.TO)

• Then: $35.72
• Now: $52.45
• Return: 47%
• Total return: 47%

Total return average: -6%

FUND PROFILE

JC Clark Focused Opportunities Fund
Performance as of: Dec. 31, 2018

• 1 year: -6.5% fund, -11.6% index
• 3 years: 4.4% fund, 3.3% index
• 5 years: 0.8% fund, 1.0% index

INDEX: TSX.
Returns are annualized and net of fees.

WEBSITE: jcclark.com